Tuesday, March 9, 2010

Commercial Metals (CMC) - Takeover Rumors Tied to AKS

CMC is trading 17.40 with IV30™ up 19%. The LIVEVOL™ Pro Summary is below.

The company is often times a takeover rumor target. For the last blog I wrote about them you can CLICK HERE.

Last time the stock spiked and the calls were bid because of this news:
"Commercial Metals returned an earlier call place to the company and confirmed that they have canceled their presentation at the Morgan Stanley Global Basic Materials Conf. In addition, CMC also confirmed that the cancellation was the result of personal issues being experienced by the presenter."

Today the rumors have returned seemingly because of rumors surrounding a takeover for AKS - a peer. Oddly enough, AKS is relatively quiet today.

CMC has traded over 36,000 options in the first hour and a half on total daily average option volume of just 3,252. ~32,000 have been calls for a 7:1 call:put ratio. The largest trades have been purchases in the Mar 17.5 calls. The Stats Tab and Day's biggest trades snapshots are included (click either image to enlarge).

The Options Tab (click to enlarge) illustrates that the Mar 17.5 calls have traded less then OI (open interest). With relatively little effort you can verify that the existing OI is long - since the trades today are pre-dominantly long as well the OI will increase - these are opening trades. The Apr 20 calls are active as well. You can also see that Mar vol is the highest of all months even though earnings are in the Apr cycle (March 24 BMO - a vol event).

The Skew Tab snap for today is also included. Notice a few things:
(1) The front month (red) is well above the other months.
(2) The front month has a reverse skew - i.e. the upside is bid.
(3) The other months have relatively flat skew.
To read why option skew exists and what "normal" skew is, you can CLICK HERE.

Skew Legend:
Red - Front month
Yellow - Second month
Green - Third month
Blue - Fourth month

Finally, the Charts Tab (6 months) is below (click to enlarge). The top portion is the underlying, the bottom the vols. The yellow shaded area at the very bottom is the IV30™ vs. the HV20™ vol difference.

Note a couple of things:
(1) The IV30™ (red line) spike pushes it well above the HV20™ (blue line).
(2) At the very bottom you can see the option volume bars - several times, almost cyclically, there are high volume pre-dominant call buying days (tall green bars). Each is followed by small price increases but then ultimately a price retreat.

This is trade analysis, not a recommendation.

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